The Affordable Care Act (ACA) continues to roll out, and small business owners need to be sure they are prepared to meet the upcoming requirements. To prepare for 2016, businesses need to be ready to report health care coverage for the first time for calendar year 2015. “Look at your employee count, talk to a tax advisor and make sure you’re doing what you need to on the W-2,” said Laura Miller Andrew, partner in the Executive Compensation and Employee Benefits and Health Care Practices of Smith, Gambrell & Russell, LLP.
The ACA requirements vary depending on the size of the business, and understanding whether your business qualifies as an Applicable Large Employer (ALE) is the first step toward compliance, Andrew said. Your ALE status for the upcoming year is determined by your current-year employee information. If you have 50 full-time employees or the equivalent in both full- and part-time employees, your business is an ALE. Determining whether your business qualifies as an ALE is “easy if you have salaried people who come to work every day and everyone works 30 hours but more complicated when you have variable-hour employees. You have to track all of your employees’ hours to figure out if you need to insure them,” Andrew said. Under a special rule for 2015, businesses may use any consecutive six-month period during 2014 to determine whether they are an ALE, rather than being required to use all 12 months of the year.
Applicable Large Employers can purchase insurance through the Small Business Health Options Program (SHOP). All ALEs must file an annual return and provide a statement to each full-time employee showing whether health insurance was offered and what type of insurance was offered, if any. The first filing of information reporting returns is due to the IRS in late February 2016 for the year 2015. If an employer does not offer “affordable” coverage that provides “minimum value” to its full-time employees and dependents, ALEs will be subject to the employer shared responsibility payments and penalties.
The latest change is the passage of the Protecting Affordable Coverage for Employees Act (H.R. 1624, known as “PACE”), which amends the definition of “small employer” as an employer that employs one to 50 employees, Andrew said. Businesses with fewer than 50 employees are not subject to the employer shared responsibility provisions and will not face any penalties or payments. However, if a business with fewer than 50 employees does purchase insurance for its employees, a small business health care tax credit may be available to them. All employers, regardless of size, are required to file an annual return in early 2016 and provide statements to employees if they provide self-insured health coverage.
The ACA regulations have the potential to significantly impact small businesses. Charles Holt, owner of Charles and George’s Car Wash in Jacksonville, Florida, said he would have to raise the cost of car washes by four dollars a wash to provide healthcare to the 70 full-time employees between his three car wash locations. By speaking with a tax professional, Holt was able to find a solution that worked for both his employees and customers.
From IRS.org: Here’s how to determine whether you are an applicable large employer for a year:
Determine how many full-time employees you had each month.*
Determine how many full-time equivalent employees you had each month.*
For each calendar month, add those numbers together to get a monthly total.
Add up the monthly totals.
Divide the sum of the monthly totals by 12.
* If you are a member of an aggregated group, count the employees of all members of the group.
More detailed information on how to determine whether an employer is an ALE, including transition relief for 2015 and rules for new employers and seasonal workers, is available in the employer shared responsibility provisions questions and answers section of IRS.gov.